FIRESTAR INTERNATIONAL P.LTD, MUMBAI v. ASST CIT CEN CIR 6(4), MUMBAI

ITA 488/MUM/2015 | 2010-2011
Pronouncement Date: 31-07-2015 | Result: Partly Allowed

Appeal Details

RSA Number 48819914 RSA 2015
Assessee PAN AAACF7931L
Bench Mumbai
Appeal Number ITA 488/MUM/2015
Duration Of Justice 6 month(s) 9 day(s)
Appellant FIRESTAR INTERNATIONAL P.LTD, MUMBAI
Respondent ASST CIT CEN CIR 6(4), MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 31-07-2015
Appeal Filed By Assessee
Order Result Partly Allowed
Bench Allotted K
Tribunal Order Date 31-07-2015
Assessment Year 2010-2011
Appeal Filed On 21-01-2015
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES K MUMBAI . . BEFORE SHRI G.S.PANNU ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA JUDICIAL MEMBER . / ITA NO.488/MUM/2015 / ASSESSMENT YEAR 2010-11 M/S. FIRESTAR INTERNATIONAL PVT. LTD. 1110 PRASAD CHAMBERS OPERA HOUSE MUMBAI 400 004 / VS. ASSTT. COMMISSIONER OF INCOME TAX CENTRAL CIR.6(4) ROOM NO.32(1) GROUND FLOOR AAYKAR BHAVAN M.K.ROAD MUMBAI 400021 ! ./ ./ PAN/GIR NO. : AAACF 7931L ( !# / APPELLANT ) .. ( $%!# / RESPONDENT ) APPELLANT BY SHRI VIJAY MEHTA RESPONDENT BY SHRI N.K.CHAND ' ( / DATE OF HEARING : 02/07/2015 ' ( / DATE OF PRONOUNCEMENT : 31/07/2015 / O R D E R PER G.S.PANNU A.M: THE PRESENT APPEAL IS PREFERRED BY THE ASSESSEE A ND IS DIRECTED AGAINST THE IMPUGNED ORDER DATED 25 TH NOVEMBER 2014 OF THE ASSESSING OFFICER PERTAINING TO THE ASSESSMENT YEAR 2010-11 PASSED U/ S.143(3) R.W.S. 144C(13) OF THE INCOME TAX ACT 1961(THE ACT) AFTER CONSIDER ING THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP) U/S. 144C(5) OF THE ACT DATED 29/9/2014.. 2. IN THIS APPEAL THE SUBSTANTIVE DISPUTE RAISED BY THE ASSESSEE IS WITH REGARD TO AN ADDITION OF RS.2 71 83 716/- MADE BY T HE AO ON ACCOUNT OF . / ITA NO.488/MUM/2015 / ASSESSMENT YEAR 2010-11 2 DETERMINATION OF ARMS LENGTH PRICE (ALP) OF THE INT EREST CHARGED FROM ITS ASSOCIATED ENTERPRISE(AE). 3. IN BRIEF THE RELEVANT FACTS ARE THAT THE APPELL ANT IS A COMPANY INCORPORATED UNDER THE PROVISIONS OF THE COMPANIES ACT 1956 AND IS INTER- ALIA ENGAGED IN THE BUSINESS OF EXPORT OF DIAMONDS AND MANUFACTURE OF JEWELLERY. IN THE COURSE OF ASSESSMENT PROCEEDINGS IT WAS NOTICED THAT THE ASSESSEE HAD ADVANCED A LOAN OF US $ 6.60 MILLION T O SYNERGIES CORP. USA AN ASSOCIATED ENTERPRISE. BEING AN INTERNATIONAL TRA NSACTION WITHIN THE MEANING OF SECTION 92B OF THE ACT INCOME THEREFROM WAS LI ABLE TO BE ASSESSED HAVING REGARD TO ITS ALP AS MANDATED BY SECTION 92(1) O F THE ACT. THE ASSESSEE COMPANY HAD CHARGED INTEREST FROM ITS AE @ LIBOR + 300 BPS. THE AO HOWEVER DETERMINED THE INCOME ON ACCOUNT OF INTERE ST CHARGEABLE FROM THE AE BY APPLYING A RATE OF 11.75% BEING THE STATE BANK O F INDIA (SBI) PRIME LENDING RATE FOR DOMESTIC LOANS. THE ASSESSEE HAD CHARGED INTEREST @ 4.74% FOR THE PERIOD APRIL 2009 TO SEPT. 2009 AND @ 3.62% FOR THE PERIOD OF OCTOBER 2009 TO MARCH 2010 WHICH WERE RATES EQUIVALENT TO LIBOR + 300 BPS. AS AGAINST THE INTEREST INCOME OF RS.1 46 01 965/- CREDITED BY THE ASSESSEE THE AO DETERMINED THE INTEREST CHARGEABLE FROM THE AE A T RS.4 17 85 681/- WHICH WAS IN CONFORMITY WITH THE ORDER PASSED BY THE TRAN SFER PRICING OFFICER (TPO) UNDER SECTION 92CA(3) OF THE ACT. THIS HAS RESULT ED IN AN ADDITION OF RS.2 71 83 716/- TO THE RETURNED INCOME ON ACCOUNT OF DETERMINATION OF ALP OF THE INTEREST CHARGED BY THE ASSESSEE ON THE LOAN AD VANCED TO ITS AE. 4. BEFORE US LD. REPRESENTATIVE FOR THE ASSESSEE H AS RELIED UPON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CAS E OF CIT VS. COTTON NATURALS (P) LTD. 276 CTR 445 (DEL) IN SUPPORT OF THE PROPOSITION THAT INTEREST CHARGED BY THE ASSESSEE BASED ON THE LIBOR RATE WAS ARMS LENGTH RATE OF INTEREST AND NO FURTHER ADJUSTMENT THEREON WAS REQU IRED TO BE MADE. APART . / ITA NO.488/MUM/2015 / ASSESSMENT YEAR 2010-11 3 FROM THEREFROM RELIANCE HAS ALSO BEEN PLACED ON VARIOUS OTHER DECISIONS OF THE TRIBUNAL ON THE AFORESAID LIMITED ISSUE WHICH ARE AS UNDER: SR.NO. NAME OF CASE CITATION A.Y ARMS LENGTH FEE UPHELD BY TRIBUNAL. 1. M/S. EVEREST KANTO CYLINDER LTD. ITA NO.7073/MUM/2012 2008-09 LIBOR 2. M/S. VIJAY ELECTRICAL LIMITED ITA NO.1159/HYD/2013 2008-09 LIBOR 3. M/S. KOHINOOR FOODS LTD. ITA NO.3869/DEL/2012 20 02-03 TO 2008- 09 LIBOR 4. TTK PRESTIGE LTD. ITA NO.1257/BANG/2011 2005-06 LIBOR 5. M/S.HINDUJA GLOBAL SOLUTIONS LTD. 145 ITD 361 (MUM) 2009-10 LIBOR 6. MICROMAX INFORMATICS LTD. ITA NO.6135/DEL/2014 2 011-12 LIBOR 7. M/S. BHANSALI & CO. ITA NO.825/MUM/2014 2009-10 LIBOR + 2% 8. M/S. EVEREST KANTO CYLINDER LTD. ITA NO.550/MUM/2014 2009-10 LIBOR +2% 9. M/S.PMP AUTO COMPONENTS P. LTD. ITA NO.1484/MUM/2014 2009-10 LIBOR + 2% 10. PROLIFICS CORPORATION LIMITED ITA NO.237/HYD/2014 2009-10 LIBOR + 2.7% 11. TRICOM INDIA LIMITED ITA NO.322/MUM/2014 2008-0 9 LIBOR + 3% 5. LD. DR APPEARING FOR THE REVENUE DID NOT CONTROV ERT THE FACTUAL MATRIX THAT THE ISSUE BEFORE US IS IN PRINCIPLE GOVERNE D BY THE JUDGEMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF COTTON NAT URALS (P) LTD.(SUPRA). 6. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIO NS. THE DISPUTE IN THE PRESENT CASE IS WITH RESPECT TO COMPUTATION OF INC OME ARISING FROM AN INTERNATIONAL TRANSACTION ENTERED INTO BY THE ASSES SEE WITH ITS ASSOCIATED ENTERPRISE WHICH IS LIABLE TO BE COMPUTED HAVING R EGARD TO ITS ARMS LENGTH PRICE AS MANDATED BY SECTION 92(1) OF THE ACT. THE APPELLANT WAS FOUND TO HAVE ENTERED INTO PROVIDING A LOAN TO ITS ASSOCIATE D ENTERPRISE NAMELY M/S. SYNERGY CORP. USA. THE ASSESSEE HAD LENT A LOAN OF US $ 6.50 MILLION ON WHICH IT HAS CHARGED INTEREST @ LIBOR + 300 BPS; WH ICH AMOUNTED TO RS.1 46 01 965/-. THE TPO PASSED AN ORDER UNDER SE CTION 92CA(3) OF THE ACT WHEREBY THE ARMS LENGTH RATE OF INTEREST WAS DETERM INED @ 4.75% BEING PRIME LENDING RATE (PLR) ON RUPEE LOANS AT THE REL EVANT POINT OF TIME. THE . / ITA NO.488/MUM/2015 / ASSESSMENT YEAR 2010-11 4 ACTION OF THE TPO RESULTED IN AN ADJUSTMENT OF RS.2 71 83 716/- TO THE INTEREST INCOME ACCOUNTED FOR BY THE ASSESSEE. THE PLEA OF THE ASSESSEE IS THAT THE LIBOR + 300 BPS RATE OF INTEREST CHARGED BY THE ASS ESSEE IS ARMS LENGTH RATE OF INTEREST AND NO FURTHER ADJUSTMENT IS REQUIRED. 6.1 THE HONBLE DELHI HIGH COURT IN THE CASE OF COT TON NATURALS LTD.(SUPRA) WAS CONSIDERING A DISPUTE RELATING TO COMPUTATION O F ALP VIS--VIS INTEREST CHARGEABLE ON LOANS ADVANCED TO A FOREIGN SUBSIDIA RY ASSOCIATED ENTERPRISE. THE ISSUE BEFORE THE HONBLE HIGH COURT RELATED TO DETERMINATION OF ALP OF INTEREST CHARGED BY AN INDIAN COMPANY ON THE LOAN A DVANCED BY IT TO ITS FOREIGN SUBSIDIARY IN FOREIGN CURRENCY. THE HON BLE HIGH COURT HELD THAT INTEREST RATE SHOULD BE THE MARKET DETERMINED INTER EST RATE APPLICABLE TO THE CURRENCY CONCERNED IN WHICH THE LOAN HAS TO BE REP AID. ACCORDING TO HONBLE HIGH COURT INTEREST RATE SHOULD NOT BE COMPUTED O N THE BASIS OF INTEREST PAYABLE ON THE CURRENCY OR LEGAL TENDER OF THE PLA CE OR THE COUNTRY OF RESIDENCE OF EITHER PARTY. THE INTEREST RATES PA YABLE ON CURRENCY SPECIFIC LOANS WERE FOUND TO BE SIGNIFICANTLY UNIVERSAL AND GLOBALLY APPLICABLE. SINCE THE LOAN IN QUESTION BEFORE THE HONBLE HIGH COURT WAS IN FOREIGN CURRENCY I.E. US $ AND IT WAS ALSO TO BE REPAID IN THE SAME CUR RENCY THE HONBLE HIGH COURT HELD THAT THE INTEREST RATE APPLICABLE TO THE RUPEE LOANS WOULD NOT BE A RELEVANT COMPARABLE. THEREFORE THE PLR APPLIED BY THE TPO WAS FOUND TO BE UNTENABLE. FOLLOWING THE RATIO OF THE DECISION HON BLE DELHI HIGH COURT IN THE CASE OF COTTON NATURALS LTD. (SUPRA) IN THE PRESE NT CASE WE FIND NO REASON TO UPHOLD THE APPLICATION OF SBL PLR ON RUPEE LOAN AS A BENCHMARK TO COMPARE THE INTEREST RATE ON LOAN ADVANCED BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISE IN FOREIGN CURRENCY. AS THE LOAN IN THE INSTANT CA SE HAS ALSO BEEN GIVEN IN FOREIGN CURRENCY I.E. US $ THEREFORE WE FIND NO I NFIRMITY IN THE ASSERTIONS OF THE ASSESSEE THAT THE INTEREST RATE CHARGED AT LIBO R + 300 BPS IS LIABLE TO BE CONSIDERED AS AN ARMS LENGTH RATE OF INTEREST. AS A CONSEQUENCE NO FURTHER TRANSFER PRICING ADJUSTMENT IS REQUIRED TO BE MADE IN ORDER TO COMPUTE THE . / ITA NO.488/MUM/2015 / ASSESSMENT YEAR 2010-11 5 ARMS LENGTH PRICE OF THE INTEREST EARNED BY THE AS SESSEE ON LOAN ADVANCED TO ITS ASSOCIATED ENTERPRISE I.E. SYNERGY CORPN. USA. THEREFORE THE ADDITION OF RS.2 71 83 716/- MADE BY THE AO IS DIRECTED TO BE D ELETED 6.1 THE ONLY OTHER ISSUE IS NON-GRANT OF CREDI T FOR TAX DEDUCTED AT SOURCE AT RS.7 38 28 862/- WHICH HAS NOT BEEN PRESSED. THE SAME IS HEREBY DISMISSED. 7. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED AS ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON 31/07/2015 ' - ./ 31/07/2015 ' SD/- SD/- ( / AMIT SHUKLA ) ( . . / G.S.PANNU ) / JUDICIAL MEMBER / ACCOUNTANT MEMBER MUMBAI; . DATED 31/07/2015 ! / COPY OF THE ORDER FORWARDED TO : 1. !# / THE APPELLANT 2. $%!# / THE RESPONDENT. 3. ( ) / THE CIT(A)- 4. / CIT 5. 34 $56 ( 56 / DR ITAT MUMBAI 6. 7 / GUARD FILE. / BY ORDER %3 $ //TRUE COPY// / (DY./ASSTT. REGISTRAR) / ITAT MUMBAI . . ./ VM SR. PS